Rental yields may be at record lows but the buy-to-let sector is still booming with growing numbers of investors looking to generate a second income or become full-time professional landlords.
A report by Alliance & Leicester says 21 per cent of buy-to-let investors are professional landlords and 11 per cent of landlords have given up their day jobs to manage their properties full-time.
A&L defines a professional landlord as a person who derives rental income equivalent to the national average wage, has a portfolio worth at least £1m or has been a landlord for at least two years and owns six to 20 properties.
The Royal Institution of Chartered Surveyors says the demand for rental property is rising at its fastest pace for nine years and landlords are having no difficulty letting their properties.
Chase de Vere Mortgage Management director Nick Gardner says: “Very few people are having trouble renting out their properties. There is significant demand for rental properties from people who cannot afford to buy or do not want to buy.”
Rooftop Mortgages business development director Alison Beech says increasing immigration, the rise in one-person households and the struggling first-time buyer market are all contributing to demand.
A&L director of mortgages Stephen Leonard says: “Demand for rented property has been growing steadily in recent years. With increasing numbers of professional landlords and most expecting to stay in the market for more than 10 years, buy to let is likely to remain an important part of the overall housing market.”
Beech says people are favouring buy to let over pensions and other investments because they prefer a tangible asset.
Gardner says: “People start off buying one property and see how that goes and most people have seen that property grow in value, which has given them money for a deposit on a second property. Many of my clients started off with one or two properties and now have hundreds.”
London & Country mortgage specialist James Cotton says the house price bonanza is spurring people on to buy their next property. He says: “House prices have done well so people have built up capital in their properties but the rise in professional landlords shows that many people are getting a decent amount of surplus between the money coming in from rent and money going out on mortgage payments.”
Cotton is not surprised that some people are taking the leap to manage their properties full-time.
He says: “Increasing a portfolio is not something that you can do here and there so it is not surprising that, as the buy-to-let market has grown, people are taking the leap to maintain and manage their properties full-time.”
The A&L report shows that professional landlords tend to be younger than non-professional landlords.
Gardner says: “Most young buy-to-let investors are dynamic and aggressive, take slightly more risk and tend to increase their portfolios more rapidly. When buy-to-let took off, younger, more ambitious types steamed in and took it up.”
Beech says: “Younger people see buy to let as a successful investment that does not require technical skills. It is very accessible and people are more aware of it.”
But are full-time landlords better landlords?
Cotton says yes, in theory. “If it is your main source of income, you should make a job of it and take time finding the right properties and tenants. You have got to treat it like a business and manage it well,” he says.
But Cotton says people are probably saving on the cost of letting agents and management agents, opting to do it themselves, which could present problems.
Mortgages plc head of marketing Julian Wells says: “If you are focused on it, you should be able to give it more attention but sometimes letting agents can be more adept. People need to take care to make sure that they are clear on the rules and not just looking at the financial benefits.”